How Associations, MLSs, Battle Trolls

Join forces, settle, license, fight back: There are many ways to respond to a claim that your association or MLS is violating another party’s patented technology or practice.

In recent years, several REALTOR® associations or the MLSs they operate have received letters alleging patent infringement. These letters, sent to thousands of businesses every year, are often vague and merely state that the sender owns a patent and that the business has infringed on their technology or on some other aspect of their business.

Last year, many REALTOR® organizations received such letters related to the method of using a printer device to scan and e-mail documents through a network*. Other letters have related to the display of property information on websites and methods of making that information available to consumers. Associations are left wondering why they’ve received these letters and what they should do about it.

The increase in patent license demand letters has been attributed to increased activity by patent trolls. “Patent troll” is a pejorative reference to an entity that does not produce anything but asserts patent rights on behalf of patent owners. This term is often used interchangeably with “nonpracticing entity,” “patent assertion entity,” and “patent monetization entity.” Patent trolls purchase or license patents from inventors in order to have the right to demand license fees from businesses that may be using the invention.

The cost of defending against a patent infringement lawsuit can easily reach into the millions, even if the lawsuit is successful. Defendants often settle lawsuits they may consider frivolous because settlement or licensing costs are typically far less than trial costs.

Due to the rise in software and business-method patents granted by the United States Patent and Trademark Office, no business or association is safe from patent trolls.

For example, in 2007, many associations and MLSs across the country received demand letters regarding a patent being asserted by a patent troll commonly referred to as “CIVIX.” CIVIX claimed to own enforceable patents for an online system that allows MLS systems, and those who use them, to locate, search for, and transmit to others information about homes such as the location, property characteristics and detail, local school district, and photos or other graphical displays.

CIVIX claimed that essentially all MLS systems infringe on its patents. In that case, those entities that received the demand letter formed a joint defense group and determined that the best business decision was to negotiate an industrywide license for use of the patent covering all MLSs. Although paying the $7.5 million demand may have been the best business decision in the Civix case, it’s not the only option when responding to demand letters.

One option is to ask the patent owner to provide specific details and evidence as to why your equipment or software infringes on the patents and how that alleged infringement actually occurs. Draft legislation recently proposed by Sen. Claire McCaskill, D-Mo., would require patent asserters to include these specific details in every demand letter they send. The draft legislation would also give the Federal Trade Commission and state attorneys general the authority to bring actions against patent owners who fail to include such information in their demand letters.

Even though patent trolls are not currently obligated to provide the specific information you request, any information, or even a nonresponse, could assist you in deciding your next step.

If the association decides that the infringement allegation has merit, it may consider negotiating a license for continued use of the patent.

If there is no basis for the alleged patent infringement claim, the association may consider options such as ignoring the letter, responding by denying any infringement, or suing the patent owner for a declaratory judgment that the association does not infringe on the patent claims.

Some software and method patents are described so broadly in the demand letters that they appear to be obvious and not unique inventions. A patent has to be novel for it to be valid. If it can be proven that the invention was not novel at the time of creation asserted by the patent owner, then the patent can be invalidated. If an association believes that the alleged patent is obvious or not novel, then it may consider pursuing invalidation of the patent by filing a lawsuit or initiating the appropriate action with the USPTO.

Recipients of patent troll demands may want to contact their state’s attorney general to find out if any resources are available from the state. Combining forces with other companies that may have received the same demand letter pursuant to a joint defense agreement could also be an effective way to combat patent trolls. The state and national associations may be able to put you in touch with other entities that have received similar demands.

The National Association of REALTORS® is helping associations, MLSs, and all members by trying to effect change on the legislative front. Late last year, the House of Representatives passed a comprehensive patent litigation reform bill. Now the Senate must act. Under the direction of Melanie Wyne, NAR’s senior technology representative, NAR has joined the Main Street Patent Coalition to urge Congress to stop abusive patent troll litigation. Information about NAR’s government affairs efforts is available at: realtor.org/topics/patent-litigation-reform.

To learn more about what information patent trolls may soon be required to disclose, the draft legislation is available at Realtor.org/articles/senate-introduces-patent-demand-letter-legislation.

Members Under Patent Troll Pressure

In February, more than a dozen of the nation’s largest brokerages, including Coldwell Banker, RE/MAX, Century 21, Keller Williams, Prudential, and Weichert Co., were named in a patent lawsuit filed by Property Disclosure Technologies LLC, the owner of a patent on “Real Estate Disclosure Reporting Methods.” The lawsuit is ongoing.

Your Options: Responding to a Patent Troll

Often there is no evidence that the patent troll knows of any infringement at your association or MLS before sending letters asking for a license fee or threatening legal action. If you receive a letter from a patent troll, you should discuss your options with your legal counsel. Your options include:

Ignore the letter.

Respond with a request for specifics. Ask how your practices infringe the patents.

Deny in writing that there is any infringement.

Pay a license fee, if the patent claim seems plausible.

Challenge the patent’s validity in court.

Ask the U.S. Patent and Trademark Office to invalidate the patent.

Katherine Johnson is general counsel of the National Association of REALTORS®. Contact her at 312-329-8256 or kjohnson@realtors.org.